Even if you don't need a mortgage, get a mortgage. You will automatically have several built in protections for your build beyond just a bank inspector.

Do you have an architect?

As Sophie said, get a bank. Our bank has saved us multiple times in that they won't release the money until they are happy that the work is done to the specs.

Do you have an architect? No, we're working with a design/build firm.

Sophie - what sort of protections?

The firm we're using comes highly recommended, and has built custom homes in our new neighborhood. (I've spoken to the owners.) The HOA requires that construction be completed within 12 months of ground breaking, so we're not too worried about the timeline. We have also retained a lawyer that handles real estate work in the area.

You don't need a bank inspector to tell you what construction milestones have been achieved prior to authorizing payment; you can easily verify that yourself with a brief on site visit: the roof is either on or it's not, the appliances are either installed or they're not, etc.

You indicated that you've engaged a local attorney with a real estate/construction law practice to serve as your mechanic's lien agent. At each draw request, your MLA will do a title take down to ensure that no supplier or subcontractor has filed a mechanic's lien against the property before authorizing payment to your builder.

Best wishes for a successful project!

2 years ago I checked this out. The cost was very reasonable. iirc the inspector suggested a schedule of about 6 inspections.

In the end I did it myself, except the final.

I disagree with those who say get a mortgage just for the "protection." You can get the protection without the cost of a mortgage.

I think the cost was less than $3000 for the series of inspections.

Having a construction loan means a tax deduction, even if you pay it off immediately when the project is done. It imposes a level of financial accountability and reality into the build. Its more difficult to give into the ''it's only XYZ''. The process for loan approval forces you to really assess if building is the best decision for you, and it forces you to not build either the cheapest cigar box nor the most expensive palace in the neighborhood.

It gives you a financial freedom to hold those funds in reserve, making more return than the 4% loan rate, and yet have the ability to spend more than you have allotted for the home if you run into a real overrun issue. Like 15K worth of rock to be blasted for your foundation. Or a supplier closing after you've already paid for 50K worth of windows, and not received them. Or you decide that the 5K allowance for cabinets is 10x too low than reality.

It is a win/win.

We did an entire home build with a "business" loan (not a construction loan) and savings. With that type of loan, the money is your own to use how you see fit. We paid it off at the end of the build, gave us a nice credit rating and we never got into the interest hassle due to early re-payment. Having the control over zero inspections (if you have enough knowledge to know what you are looking at) and simply writing checks when needed at the site was nice. Contractors love leaving a job site with a zero-delay check in their hands and remember who was quick to pay if you need them again in the future.

Agree with Worthy here. We built with cash and now flip properties with cash and have never regretted it on any project.

We had a construction loan and did our own GC'ing. I would submit invoices to the title company, either from my subs or for supplies I bought. They would supply the check along with a lien release. They didn't require any interim inspections but I believe they reserved the right to. Many times, I would pick up the check and pay the sub once the work was completed to our satisfaction (or passing the county inspection if applicable), getting the lien release signed and sent back to the title company. Worked out great. I literally handed my roofer a check when he got off the ladder for the last time. And when a small leak developed when the plumbers installed the vent pipes--guess who was at my house within a couple of hours to fix the problem :) My subs appreciated the quick turn-around and the ability to pay their crews on time. They are taking a chance to work in a one-off project in between regular draws, so I wanted to make it painless and reward good work.

Anyone's money that isn't earning more than 4% doesn't have it in a wise investment and should probably look at that first, before even thinking about building. Tying all of your liquid assists up in something as volatile as a construction project is not a wise move. Ever.

But who is talking about trying up all their liquid assets? We don't know the OP's situation. In our case, we are comfortable having a paid off primary and secondary home and investment properties because they are in addition to our stock portfolio. The properties are just one piece of the overall investment strategy and good diversification. Not to mention peace of mind.

Right, ho!

I am chasing my bank to send an erstwhile inspector to my site to get a draw done. And the subs are chasing me. I HATE not paying people on MY schedule. The bank inspector is a local branch guy with no construction experience who takes pic on his iPhone as his "value add".

I am in the "do it yourself" camp.

Thanks for the advice re: inspectors. (We discussed the $$ details with our financial advisers before we even looked at lots.) In an abundance of caution, we've decided to hire an independent inspector. And since we're the ones paying him, scheduling inspections shouldn't be an issue. Thanks again!

Bank guy is funding my draw as we speak, and my concrete contractor is coming at 2 to pick up a check.... we'll have at least an hour to spare.... Sounds like you have a good system in place.